Looking finance a house with credit issues?

I'm in kind of a unique kind of situation here. During my last semester of college (a year ago), I had to have emergency surgery and it resulted in a ton of medical bills that I've slowly been paying off. Prior to this, my credit was pretty solid, but for some reason that even the mortgage broker can't seem to explain, the medical collections have brought me down big time.

I have a regular W2 income. My husband is self-employed and he tends to put his money back into his business or into rental property, so he cannot show much income on paper. His credit is average.

I have student loans and the medical debt, but otherwise we are fairly low in debt. He owns 3 houses and only has a small equity loan left to pay on the one that's currently rented out. I own land and he also has a lot of land available.

We would like to purchase a house together, to live in. The one we're currently in is paid off, but small (and we have 3 kids), so we plan to rent it out.

Now, it's been a LONG time since I had to finance a house, so I'm not at all sure how things work now. We have 3 options:
1) Buy a fixer-upper for less than $100K that can pass inspection but needs work (around $90K)
2) Buy a fixer upper that can't pass inspection (around $90K)
3) Build on our own land (Around $130K)
4) Buy a ready made house. (Around $150K)

The people we've been working with to finance us have been pretty vague on details--I initially planned to finance it myself but the credit problems have nixed that. Selling any of the houses is not an option, but we would consider refinancing if it makes sense.

Can anyone help me reason through some of this? Quite frankly, it all seems overwhelming just finding a place to start.

Bad credit because you have active collections that you can not afford to pay and your first thought it that you need to buy a new home?

dyslexiateechur said:   He owns 3 houses and only has a small equity loan left to pay on the one that's currently rented out.

So 2/3 of his rental empire is vacant? That doesn't bode well for adding your current home to the mix.

You have 2 problems: your poor credit and husbands income documentation.

Theres no quick fixes for either of those. Nowadays if you want financing then you'll need decent credit and sufficient documented income. If it was 2006 you wouldn't have a problem but now banks actually check to see if people can actually repay mortgages.

DO you know what your actual credit scores are? How bad is bad?
Whats the individual and household incomes?

dyslexiateechur said:   I'm in kind of a unique kind of situation here. During my last semester of college (a year ago), I had to have emergency surgery and it resulted in a ton of medical bills that I've slowly been paying off. Prior to this, my credit was pretty solid, but for some reason that even the mortgage broker can't seem to explain, the medical collections have brought me down big time.

I have a regular W2 income. My husband is self-employed and he tends to put his money back into his business or into rental property, so he cannot show much income on paper. His credit is average.

I have student loans and the medical debt, but otherwise we are fairly low in debt. .
...and I don't know why the credit card company declined my application because of too many inquiries - I don't have any inquiries (except for the 4 from last week...). And they complain about my missed payments, when I always pay on time (well, except for the payments I missed a couple months ago)...

You need to read what you wrote - you have "tons of medical bills", collections (plural), a husband with no income, and student loans. Don't pretend no one can explain why your score is low and you are having problems getting a loan.

If you have all this equity in various houses and land, why aren't you just getting an equity loan on one of those? Your 3 options (which you then proceed to list 4 options) have nothing to do with financing, they're just the type of house you want to walk into.

Your position is not that unique. There of tons of people with bad credit and limited income who want to buy a bigger house.

Glitch99 said:   
..
We live in a place that has a pretty big shortage of rental properties, so we plan to rent out the one we're currently living in also--probably for about $1200-$1500 a month, which will be more than the mortgage.
Wait, I thought you just said this home is paid off? You could rent it out for $1 and it should be for more than the mortgage....

Either you are ridiculously incompetent, or you need to start thinking about what you are typing before you type it - we don't know what you ment to say, only what you actually did say.

I interpreted her as meaning that they could rent out their current house for 1200-1500 which would cover the future mortgage on the new prospective house they are thinking of buying.

dyslexiateechur said:   jerosen said:   DO you know what your actual credit scores are? How bad is bad?
Whats the individual and household incomes?

I don't know the actual numbers. When I did the paid equifax credit scorer, it said 670, but the lady at the mortgage company is saying it's showing below 600 for her--she even said she couldn't figure out why based on looking at my credit history. She said his is "just fine".

My income is $75K, W-2. His income is a lot more complicated....he actually makes pretty good money but it's all over the place in various funds and real estate so I don't really know what his personal income is (We just got married in 2012 so I haven't filed taxes with him yet.), but I'm assuming it's just going to be beyond complicated so I'm not counting it.

So is the mortgage company working on an application? If they pulled your credit then did they approve you or not?

Either way I'd ask her for a copy of the credit scores she pulled. If they deny you then they have to give you the scores. I'd also check your full credit reports to make sure everything there is accurate. You can get your full credit reports (reports but not scores) via annualcreditreport.com
Its possible the difference between 600 and 670 is due to different credit bureaus. There are often differences or inaccuracies between the 3 bureaus.
The exact scores or reasons why one shows as 600 probably won't help you much here. If theres an inaccuracy you won't get it fixed fast. You should of course report any inaccuracy but the credit bureaus don't fix stuff fast.

I interpreted her as meaning that they could rent out their current house for 1200-1500 which would cover the future mortgage on the new prospective house they are thinking of buying.

Correct.

Sorry, but paying off 50% of the balance isn't close to being mostly paid off,..

Paying off 50% of my balance in 7 months isn't good? I plan on finishing paying off the rest by June.

jerosen said:   


So is the mortgage company working on an application? If they pulled your credit then did they approve you or not?


Either way I'd ask her for a copy of the credit scores she pulled. If they deny you then they have to give you the scores. I'd also check your full credit reports to make sure everything there is accurate. You can get your full credit reports (reports but not scores) via annualcreditreport.com
Its possible the difference between 600 and 670 is due to different credit bureaus. There are often differences or inaccuracies between the 3 bureaus.
The exact scores or reasons why one shows as 600 probably won't help you much here. If theres an inaccuracy you won't get it fixed fast. You should of course report any inaccuracy but the credit bureaus don't fix stuff fast.

They haven't approved or denied yet. She just said it's really strange and she's "working on it".

I did do annualcreditreport.com, and I had to dispute a bunch of stuff not long ago for being inaccurate. (I had one $36 bill that I'd already paid off appear in 6 different places, among other things.

One thing I am pretty confused about:

What are the advantages of trying to do this the traditional mortgage path? It seems like this is probably going to be the most difficult anyway. I was always told not to borrow against the equity unless you absolutely had to.

FHA is not that bad of an option right now. Yes, you pay the equivalent of PMI (FHA calls it something else) but the interest rates on FHA loans are actually just a tad lower then a traditional loan. If you go FHA now...you can get out of the mortgage insurance in 5 years. There are a lot of rumors that in 2013 they are changing this so the mortgage insurance never expires on your loan so you need to do FHA now if you have any plans on doing FHA!

FHA is not the best option however when credit or down payment amounts are not good…FHA is your best option in many of those cases.

They require 3.5% down so you are talking less then $5k in your situation

dyslexiateechur said:   One thing I am pretty confused about:

What are the advantages of trying to do this the traditional mortgage path? It seems like this is probably going to be the most difficult anyway. I was always told not to borrow against the equity unless you absolutely had to.

THe advantage of traditional mortgage path is generally lower interest.

Borrowing against equity and taking out a mortgage aren't really significantly different. Either way the property is used as collateral. You don't want to borrow against equity in a property to pay off things like unsecured credidt card debt cause there you could lose your house to pay off debts that aren't secured with collateral.

Glitch99 said:   jerosen said:   Glitch99 said:   
Sorry, but paying off 50% of the balance isn't close to being mostly paid off,..


Yeah it is.

50% or more of something is most of it.
"Most" and "majority" are not synonyms.. Most means "near the maximum" - and 50% is nowhere close to the total amount needing to be repaid.

Most and majority can be used synonymously.

see :
http://dictionary.reference.com/browse/most

2.
in the majority of instances: Most operations are successful.
5.
the greatest number or the majority of a class specified: Most of his writing is rubbish.

^ Nothing needs chilling. Its a tangential semantics argument and using a dictionary is pretty appropriate. I didn't pull a gun...

(edit, course I have to hit edit to fix my incorrect spelling of the word semantics)

Quikboy4 said:   Your position is not that unique. There of tons of people with bad credit and limited income who want to buy a bigger house.Maybe it is "kind of unique" (Whatever that is. Is that like "kind of pregnant"?)

dyslexiateechur said:   
My income is $75K, W-2. His income is a lot more complicated....he actually makes pretty good money but it's all over the place in various funds and real estate so I don't really know what his personal income is (We just got married in 2012 so I haven't filed taxes with him yet.), but I'm assuming it's just going to be beyond complicated so I'm not counting it.
Hate to break it to you, but it probably leans closer to the side of non-existent rather than complicated.

You need to know where you are actually starting from with your credit score
www.creditkarma.com & www.creditsesame.com

It sounds like your mind is set on buying another property though. If this is the case, personally I would recommend an equity line from the current properties. Should be easy enough to do. Especially if you speak with the commercial lenders who will be able to take multiple properties and pool them together as collateral.

I discourage you from buying bigger than your means though. My family of 4 lives in a 2 bedroom 850 sq/ft apartment. I know it's not easy, but sometimes it's much more beneficial in teaching your children how to adapt themselves, rather than finding a new environment every time the grass is a little greener.

dbond79 said:   OP, out of the, at least, 5 properties that you've indicated you and your husband own or have "available",(3 rentals, your land, and his "a lot of land available"), how did you guys acquire all of these? Meaning, besides the one you've already said has a mortgage, did you not finance all or most of those purchases, or were they all purchased with cash, or inherited?

Assuming you guys must have some familiarity with financing real estate transactions, what's changed this time? Is it just your debt/lower score, banks higher underwriting standards, ???

You mentioned your hesitance to pull equity from existing properties based on old advice. I've often heard it suggested that you shouldn't borrow against your home in order to buy more investment properties, but can't recal hearing the reverse. I'm not a real estate expert, but aside from some probable tax implications on which others would be more knowledgeable than myself, I don't see the big difference between borrowing against an existing property vs. the

new one. Either way you're leveraging your purchase through debt.

I bought my homes the old fashioned way....bought one, sold it, bought another, etc. the last one was destroyed by Katrina, hence the land.

He does things a lot different from me though. The land is inherited, so he built on it with 50% cash and a small loan. He did most of the work himself. He bought the other two properties with cash and the mortgage was for a renovation.

He wants to build another house himself with cash. The thing is, he just doesn't have the time.

So to answer your question, the difference this time is that I'm trying to navigate a different lending industry while being married to someone whose attitude is to work hard and pay cash.

Right now, I'm seriously just thinking about paying off the debt and putting an addition on this house.

dyslexiateechur said:   

He does things a lot different from me though. The land is inherited, so he built on it with 50% cash and a small loan. He did most of the work himself. He bought the other two properties with cash and the mortgage was for a renovation.

He wants to build another house himself with cash. The thing is, he just doesn't have the time.

What's he want to do? Right now, he builds or buys, and then rents out. Sounds like he could set himself up with a contractor's license, and then buy fixer-uppers, work on them, and then flip them.

I get a really bad feeling about his business. I suspect it's cash-only and off the books.

dyslexiateechur said:   One thing I am pretty confused about:

What are the advantages of trying to do this the traditional mortgage path? It seems like this is probably going to be the most difficult anyway. I was always told not to borrow against the equity unless you absolutely had to.

That's what a mortgage IS.